Health care reform raises premiums for young adults

Young adults are going to pay more for health insurance thanks to a health care reform provision that limits how much older people have to pay for coverage.

Beginning in 2014, older Americans can’t be charged more than three times what young adults pay for health insurance. In 42 states, the current age band ratio is 5 to 1. Insurers charge older Americans more for insurance because they have more health problems — it makes actuarial sense.

But Congress, in its wisdom, wanted to give older Americans a break, so they reduced this age band to 3 to 1.

That means younger adults will have to pay more for health insurance in the individual market than they otherwise would have. They’ll basically be subsidizing the older generation.

How much more? Two actuaries in the Milwaukee office of management consulting firm Oliver Wyman estimate that adults in the 21-29 age bracket will pay 42 percent more for insurance than they would have without health care reform. Adults in the 30-39 age bracket will pay 31 percent more. These estimates take into account the premium subsidies that will be provided by the federal government to lower-income Americans. The full analysis is in the latest issue of Contingencies, a magazine published by the American Academy of Actuaries.

These younger Americans will be getting more insurance for their money, because insurers will have to provide more benefits under their policies.

The question, however, is whether these “young invincibles” can afford these richer policies. Many young adults may decide it makes more sense to pay the penalty for not having health insurance — the penalty starts at $95 or 1 percent of modified adjusted gross income (whichever is greater) in 2014. Then it rises to $325 or 2 percent of modified AGI in 2015, and $695 or 2.5 percent in 2016.

If you’re young and healthy, and making OK-but-not-great money, you may decide you’re better off paying the penalty and taking a chance on not getting seriously ill than paying thousands of dollars for health insurance.

And that’s where the young may get their revenge on the old: If a lot of young adults decide not to get insurance, risk pools will be older and less healthy than they would be if lots of young adults jumped into the pool. That will lead to higher insurance costs for folks who are in the pool.